Special Needs Trust Overview

---
name: special-needs-trust-overview
description: |
  Explains special needs trust concepts and planning considerations for families with
  dependents who have disabilities, including how trusts preserve government benefit
  eligibility, the types of special needs trusts, and what questions to ask a
  specialized attorney. Produces a concept overview and attorney consultation preparation.
  Use when the user asks about special needs trusts, supplemental needs trusts, planning
  for a dependent with disabilities, or how to leave an inheritance without affecting
  government benefits.
  Do NOT use for recommending a specific trust type, drafting trust documents, determining
  government benefit eligibility, or providing disability law advice.
license: Apache-2.0
metadata:
  author: foundry-skills
  version: "1.0.0"
  tags: "estate-planning legal-literacy guide research"
  category: "legal-civic"
  subcategory: "estate-planning"
  depends: ""
  disclaimer: "not-legal-advice"
  difficulty: "advanced"
---
# Special Needs Trust Overview

> **Disclaimer:** This skill provides general legal literacy and educational information to help you understand legal concepts and processes. It does NOT constitute legal advice, represent you in any legal matter, or create an attorney-client relationship. Laws vary by jurisdiction and change over time. Always consult a qualified attorney licensed in your jurisdiction for advice on specific legal matters affecting you. Government benefit rules, resource limits, and trust administration requirements are subject to regulatory change -- all figures and thresholds cited here should be verified with a current benefits counselor or special needs planning attorney.

---

## When to Use

**Use this skill when the user:**
- Asks about special needs trusts (SNTs), supplemental needs trusts, or "disability trusts" in the context of estate planning for a family member with a disability
- Wants to understand how to leave an inheritance, life insurance proceeds, or retirement account benefits to a person with disabilities without jeopardizing their SSI, Medicaid, or other means-tested government benefits
- Is a parent, grandparent, sibling, or other family member who wants to plan for a loved one with a disability as part of their own estate plan
- Asks about the difference between first-party and third-party special needs trusts, or between a standalone SNT and a pooled trust
- Wants to understand what assets and expenses a special needs trust can legitimately pay for
- Is preparing to meet with a special needs planning attorney and wants to understand foundational concepts first
- Asks about ABLE accounts in conjunction with special needs trusts or as a complement to estate planning for a person with disabilities
- Has a family member who recently received an inheritance or personal injury settlement that may threaten their government benefits, and wants to understand their options
- Asks how to coordinate a special needs trust with broader estate planning instruments (wills, revocable living trusts, beneficiary designations, life insurance)
- Wants to understand trustee selection for a special needs trust, including professional trustees and pooled trust options

**Do NOT use when:**
- The user wants to draft, review, or modify a special needs trust document -- refer to a special needs planning attorney
- The user is asking about government benefit eligibility rules, application procedures, or appeals -- refer to a Social Security Administration benefits counselor, State Medicaid office, or disability rights organization
- The user is asking about general trust concepts without a disability planning component -- use `trust-basics-explainer`
- The user needs guidance on guardianship, conservatorship, or supported decision-making for an adult with disabilities -- refer to a disability rights attorney
- The user wants help applying for SSI, Medicaid, SSDI, Section 8, or other specific government programs -- refer to a benefits specialist or local legal aid organization
- The user is asking about special education rights, IEP planning, or school-based disability services -- use a special education skill or refer to a disability education specialist
- The user needs help resolving an existing trust dispute, removing a trustee, or handling trust litigation -- refer to a trust litigation attorney
- The user is asking about disability insurance (private income replacement policies) rather than government benefits -- use an insurance literacy skill

---

## Process

### Step 1: Identify the User's Context and Relationship to the Planning Situation

Before delivering any information, establish the user's specific scenario. The framing, emphasis, and most relevant trust type depend heavily on who is asking and why.

- **Determine the role:** Is the user a parent doing proactive estate planning, a grandparent coordinating with a parent's plan, the individual with a disability themselves, or a family member managing an unexpected inheritance?
- **Determine the trigger:** Is this proactive planning (no immediate crisis), reactive planning (recent inheritance or settlement), or transition-triggered planning (death of a primary caregiver, aging parent, child reaching adulthood)?
- **Determine current benefit status:** Does the person with disabilities currently receive SSI, Medicaid, SSDI, Section 8 housing assistance, or other means-tested benefits? The planning calculus changes dramatically depending on which benefits are active and how much those benefits are worth.
- **Assess urgency signals:** If the user mentions that a person with disabilities has already received money directly (inheritance, gift, lawsuit settlement), this is a time-sensitive situation -- SSI recipients must report changes in resources within 10 days of receipt, and Medicaid rules are similarly strict. Flag this clearly and emphasize the need for immediate legal consultation.
- **Identify the disability type and trajectory:** While the trust structure is legally similar across diagnoses, the practical planning implications differ. A young adult with Down syndrome who will receive lifetime support differs from an adult with multiple sclerosis whose needs may escalate unpredictably, or a child with autism who may achieve greater independence over time.
- **Gauge the user's prior knowledge:** Some users will be encountering these concepts for the first time; others may already know the difference between first-party and third-party SNTs but need clarity on specific sub-issues. Calibrate depth accordingly.

---

### Step 2: Explain the Core Problem -- Means-Tested Benefits and the Inheritance Trap

Ground the user in why special needs trusts exist before introducing the solution. Many users underestimate how severe the benefit disruption from an unplanned inheritance can be.

- **SSI (Supplemental Security Income):** A federal income support program administered by the Social Security Administration (SSA) for people with disabilities, blindness, or age 65+ who have limited income and resources. The resource limit for an individual is $2,000 (this limit has not been updated since 1989 and is widely criticized but remains in effect as of this writing). The resource limit for a couple is $3,000. If a beneficiary's countable resources exceed these limits, they lose SSI immediately.
- **Medicaid:** The joint federal-state health insurance program that covers millions of people with disabilities. For many individuals with significant disabilities, Medicaid is not a modest benefit -- it funds home-based personal care attendants, residential services, day programs, occupational and physical therapy, communication devices, and long-term services and supports (LTSS) that can cost $50,000 to $200,000+ per year depending on the level of care needed. Losing Medicaid can be catastrophic.
- **The linkage between SSI and Medicaid:** In most states, SSI eligibility automatically confers Medicaid eligibility. Losing SSI can therefore cascade into losing Medicaid, even if Medicaid itself has a higher resource threshold in a given state. The states that operate "Section 1634" states tie the two programs directly. Users should verify their state's rules.
- **SSDI (Social Security Disability Insurance):** A separate program based on work history (or the work history of a parent) rather than means-testing. Resource limits do not apply to SSDI itself, but many SSDI recipients also receive SSI or Medicaid and remain subject to those programs' rules. Medicare eligibility follows SSDI after a 24-month waiting period. Clarify which benefits the person receives before assuming resource limits apply.
- **The concrete cost of losing benefits:** Help the user understand what is at stake. A $30,000 inheritance left directly to an SSI and Medicaid recipient could: (a) immediately suspend SSI (approximately $914/month for an individual in 2024), (b) trigger Medicaid suspension or a spend-down requirement, and (c) force the person to spend through the entire inheritance on basic living expenses and healthcare before benefits can be restored. The inheritance that was meant to improve the person's life instead displaces government funding and leaves them in the same position once spent -- with no enhanced quality of life and no benefits improvement.

---

### Step 3: Introduce the Three Core Trust Structures with Precise Distinctions

Walk through each trust type with the technical precision a user needs to have an informed conversation with an attorney. Do not recommend one type over another, but do explain which factual scenarios trigger each.

**Third-Party Special Needs Trust (3rd-Party SNT / Supplemental Needs Trust):**
- Created and funded exclusively with assets belonging to someone OTHER than the beneficiary with disabilities -- typically parents, grandparents, siblings, or other family members
- The assets placed in the trust were never owned by the beneficiary, which is the legal foundation for excluding them from the beneficiary's countable resources under SSI and Medicaid rules
- Governed by 42 U.S.C. § 1396p(d)(2)(B) exclusions and parallel SSA POMS (Program Operations Manual System) guidance at SI 01120.200 through SI 01120.210
- **No Medicaid payback requirement** -- when the beneficiary dies, remaining trust assets pass to remainder beneficiaries designated by the trust creator (family members, charities, other heirs). This is the single most important advantage of a third-party SNT over a first-party SNT.
- Can be a standalone trust created during the trust creator's lifetime (inter vivos), or a testamentary trust created within a will that comes into existence only upon the creator's death
- Can receive contributions from multiple family members over time, making it a "family fund" for the person with disabilities
- There is no age restriction for the beneficiary of a third-party SNT

**First-Party Special Needs Trust (Self-Settled SNT / d4A Trust):**
- Created for a beneficiary using the beneficiary's OWN assets -- assets that the beneficiary already owns or is entitled to own
- Common scenarios: the person with disabilities inherits directly (without a trust in place), receives a personal injury or medical malpractice settlement, receives a divorce settlement, or is the beneficiary of a retirement account that was not directed to a trust
- Authorized under 42 U.S.C. § 1396p(d)(4)(A) -- the "d4A" designation refers to this statutory section
- **Must be established by:** the beneficiary's parent, grandparent, legal guardian, or a court. A competent adult with disabilities may not, under federal law, establish their own d4A trust (though some states have created workarounds)
- **Age restriction:** The beneficiary must be under age 65 at the time the trust is established. A person with disabilities who is 65 or older cannot use a d4A trust to shelter assets -- they must explore other options (spend-down, Medicaid planning strategies)
- **Medicaid payback is mandatory:** Upon the beneficiary's death, the trust must reimburse the state Medicaid agency (or agencies in all states where the beneficiary received Medicaid) for the cost of Medicaid services paid on the beneficiary's behalf during their lifetime before any remaining assets pass to other heirs. This payback obligation can consume the entire remaining trust balance. Only after Medicaid is paid in full do remaining assets pass to other beneficiaries named in the trust.
- Court involvement is often required to establish a d4A trust, particularly when the assets are substantial or when no parent or grandparent is available to serve as the trust creator

**Pooled Special Needs Trust (d4C Trust):**
- Authorized under 42 U.S.C. § 1396p(d)(4)(C)
- Managed by a nonprofit organization, which pools the funds of multiple beneficiaries for investment and management purposes while maintaining a separate sub-account for each individual beneficiary
- **Can be funded with the beneficiary's own assets (like a d4A trust)** and carries the same Medicaid payback requirement upon death, though many pooled trusts allow any remaining balance in the sub-account to remain with the nonprofit rather than passing to heirs (the nonprofit absorbs it in lieu of Medicaid payback -- this varies by organization and state)
- **Key distinction from d4A:** A person with disabilities aged 65 or older can join a pooled trust in some states without the age restriction that applies to d4A trusts -- though some states have enacted restrictions limiting this option for older adults
- Also available for third-party funding (parents contributing on behalf of a person with disabilities), though this is less common
- **Practical advantages:** Professional management by an organization with specialized expertise in government benefit rules; lower minimum funding thresholds than standalone trusts (pooled trusts may accept sub-accounts with as little as $5,000-$25,000); no need to find and manage an individual trustee
- **Practical disadvantages:** Less individualized decision-making; the family has less direct control; the nonprofit's financial health matters (if the organization fails, accounts may be at risk); not all states have robust pooled trust programs

---

### Step 4: Explain the Supplemental Principle -- What Trust Funds Can and Cannot Pay For

This is the operational core of how a properly administered trust preserves benefits. The trustee's distribution decisions are the ongoing mechanism that keeps the trust effective.

- **The supplemental principle:** The trust is designed to SUPPLEMENT -- not replace -- government benefits. The trustee must never make distributions that pay for goods and services that government benefits are supposed to cover, because doing so wastes trust funds (the government should be paying for those items) and may trigger benefit reductions.
- **In-Kind Support and Maintenance (ISM):** This is the SSA concept that governs what happens when someone provides food or shelter to an SSI recipient. If the trust pays directly for the beneficiary's food, rent, or mortgage, the SSI benefit can be reduced by up to one-third (called the "one-third reduction rule" or "presumed maximum value rule"). As of March 2024, the SSA eliminated ISM counting from SSI calculations in a significant policy shift -- but this should be verified with a benefits counselor, as it may be subject to regulatory reversal, legal challenge, or implementation variation.
- **Cash distributions:** If the trustee distributes cash directly to the beneficiary, the cash counts as unearned income for SSI purposes and reduces the SSI benefit dollar-for-dollar. Cash should virtually never be distributed directly from a special needs trust to the beneficiary.
- **Best practice:** The trustee pays vendors, providers, and merchants directly on behalf of the beneficiary, rather than giving the beneficiary money to spend.

**Generally Safe Distribution Categories:**
- Recreation and entertainment (tickets, memberships, hobbies, vacations, outings, sporting events)
- Technology and electronics (computer, tablet, smartphone, adaptive and assistive technology devices)
- Transportation (vehicle purchase, vehicle modifications for wheelchair accessibility, rideshare costs, car insurance, maintenance)
- Supplemental health and wellness (dental care, vision care, hearing aids, private therapy sessions beyond Medicaid-covered amounts, gym memberships, personal training)
- Education and enrichment (community classes, tutoring, college tuition, vocational training programs)
- Personal care items beyond what Medicaid provides (specialized skin care, cosmetics, clothing, preferred hygiene products)
- Furniture and home furnishings
- Burial and funeral expenses (a trust may pre-pay burial expenses -- these are often excluded from resource counts)
- Legal fees on behalf of the beneficiary
- Companion care, personal advocacy, or care coordination services not covered by Medicaid

**Requires Careful Structuring or Attorney Guidance:**
- Housing costs (rent, mortgage payments, utilities) -- paying these can reduce SSI under ISM rules depending on current SSA policy; the trust may own the home directly to avoid some ISM complications
- Food -- depending on current ISM rules, food payments may reduce SSI; purchasing groceries through a grocery delivery account or prepaid card loaded by the trustee requires guidance

**Generally Avoid:**
- Direct cash payments to the beneficiary
- Payments for items that Medicaid is already supposed to cover (substituting trust funds for Medicaid wastes trust assets)
- "Loans" to the beneficiary (SSA may treat them as income)

---

### Step 5: Address Trustee Selection with Specificity

Trustee selection for a special needs trust is more complex and consequential than for ordinary trusts because the trustee must operate at the intersection of trust law, government benefit rules, and deeply personal knowledge of the beneficiary's needs.

- **The dual role of the trustee:** A special needs trustee must simultaneously be a sound fiduciary (managing investments prudently, keeping accounts, filing tax returns) and a benefits-aware distribution decision-maker (knowing which expenditures preserve benefits and which ones jeopardize them). Very few people naturally combine both capabilities.
- **Family member trustees:** Family members know the beneficiary intimately and can make distributions with personal care and knowledge. However, they are often unprepared for the benefit compliance complexity, may not have long tenures (if they are elderly parents), and may have conflicts of interest if they are also remainder beneficiaries. A family member trustee must be willing to educate themselves continuously or work closely with a benefits counselor.
- **Professional trustees:** Corporate trustees (trust companies, bank trust departments) and private professional trustees offer continuity, expertise, and institutional accountability. They are subject to fiduciary standards, are regulated, and can serve for decades. Fees typically range from 0.75% to 1.5% of trust assets annually, or a flat fee for smaller trusts. The downside is reduced personalization -- a corporate trustee may not know whether the beneficiary prefers jazz concerts or baseball games.
- **Trust protector or trust advisor:** A powerful structural solution is to appoint a "trust protector" (a legal role with defined powers in the trust document) or "trust advisor" (a non-fiduciary advisory role) who is typically a family member or close friend. This person can have the power to guide the trustee on personal care decisions, approve or deny specific distributions, remove and replace the trustee, and amend the trust to adapt to changes in law or the beneficiary's circumstances. This architecture combines professional expertise with personal knowledge.
- **Successor trustees:** The trust document must name a clear succession of trustees because the trust may operate for 40-70 years across the beneficiary's lifetime. Planning for what happens when the first trustee dies, retires, or becomes incapacitated is essential.
- **Pooled trust as trustee alternative:** When no suitable individual or corporate trustee is available, or when the trust amount is modest (under $100,000-$150,000), a pooled trust organization may be the most practical option. The nonprofit effectively serves as professional trustee.

---

### Step 6: Cover Integrated Planning Considerations Beyond the Trust Document

A special needs trust does not function in isolation. It must be coordinated with the user's entire estate plan and family situation.

- **Coordinating wills and beneficiary designations:** Every family member who might leave assets to the person with disabilities must name the TRUST as beneficiary -- not the individual. This applies to wills, retirement account beneficiary designations (IRAs, 401(k)s), life insurance policies, payable-on-death accounts, and transfer-on-death registrations. A single uninstructed grandparent who leaves $15,000 directly to the person with disabilities can cause immediate benefit suspension.
- **Life insurance as a funding mechanism:** Parents who have modest estates can use life insurance to fund a special needs trust at death. A second-to-die (survivorship) life insurance policy on both parents' lives is a common planning tool -- it pays out when the second parent dies, which is precisely when the trust needs to be funded. The trust is named as beneficiary of the policy.
- **Retirement accounts and the SECURE Act implications:** Naming a special needs trust as beneficiary of an IRA or 401(k) requires careful drafting. Under the SECURE Act (2019) and SECURE Act 2.0 (2022), most non-spouse beneficiaries must withdraw inherited retirement account funds within 10 years. However, a beneficiary who is a "disabled or chronically ill individual" qualifies as an "Eligible Designated Beneficiary" and may stretch distributions over their lifetime. The trust must be drafted as a "see-through trust" that meets IRS requirements, and specifically as either a "conduit trust" or "accumulation trust" for the IRA rules to apply correctly. This is a highly technical area where specialized attorney guidance is essential.
- **The ABLE Account as a complement:** ABLE accounts (Achieving a Better Life Experience, authorized under 26 U.S.C. § 529A) are tax-advantaged savings accounts for people with disabilities whose disability began before age 26 (the age limit was being raised to 46 under SECURE Act 2.0 provisions, with implementation timelines varying -- verify current status). Annual contribution limits equal the federal gift tax annual exclusion ($18,000 in 2024). ABLE accounts do not count as a resource for SSI purposes up to $100,000 (amounts above $100,000 count as a resource and can suspend SSI). ABLE account funds can be used for a broader range of "qualified disability expenses" than a special needs trust and are easier to access (no trustee required). An ABLE account and a special needs trust can complement each other: the ABLE account handles smaller, frequent, flexible expenditures while the trust handles larger capital expenditures and long-term reserves.
- **Letter of intent:** This is not a legal document and has no legal effect, but it is arguably the most humanly important document in the entire planning package. It tells future caregivers and trustees who the person with disabilities actually is -- their personality, preferences, routines, relationships, fears, dreams, and quality-of-life priorities. The letter of intent should be updated regularly (annually or after any significant life change) and stored with the trust documents. It is the trustee's guide to meaningful, person-centered distributions.
- **State plan variations and Medicaid waivers:** Medicaid is partly federally mandated and partly state-administered. States operate many types of Medicaid waiver programs for people with disabilities (Home and Community-Based Services waivers, NOW/COMP waivers, etc.) that have varying eligibility and resource rules. A trust that preserves SSI eligibility may still affect a specific state waiver program. A benefits counselor who knows the specific state's programs is essential.

---

### Step 7: Generate the Attorney Consultation Preparation Package

Synthesize the user's specific situation into a structured set of questions and a pre-meeting checklist.

- **Identify the most relevant question clusters** based on the user's scenario: funding questions (how will the trust be funded -- life insurance, will bequest, retirement account?), trustee questions (who will serve, who will be the trust protector?), coordination questions (how does this fit with the rest of the estate plan?), benefits questions (how will specific planned distributions affect current benefits?), and family coordination questions (which relatives need to update their estate plans?).
- **Flag situation-specific urgency items:** If the user is dealing with a recent inheritance or has not yet warned other family members, elevate these to the top of the attorney consultation agenda.
- **Include preparation tasks the user can complete before the attorney meeting:** gathering benefit award letters, documenting current services received, listing all assets that might eventually benefit the person with disabilities, identifying potential trustees, and beginning the letter of intent.
- **Always emphasize attorney specialization:** Special needs planning sits at the intersection of estate planning law, trust law, federal disability benefit regulations (SSA POMS), Medicaid law (which varies by state), and tax law. A general estate planning attorney who does not regularly practice special needs planning may produce a trust document that technically exists but fails to preserve benefits due to drafting errors. Recommend finding an attorney who is a member of the Special Needs Alliance, the Academy of Special Needs Planners, or who is a Certified Elder Law Attorney (CELA) with special needs planning experience.

---

## Output Format

```
## Special Needs Trust Concepts Overview
*Prepared for: [user's relationship to the person with disabilities, e.g., "Parent planning for adult son with Down syndrome"]*
*Situation type: [Proactive estate planning / Reactive -- unexpected inheritance / Transition planning]*

---

### The Core Problem: Why Direct Inheritances Can Be Harmful

| Scenario | Without a Trust | With a Properly Funded SNT |
|---|---|---|
| $100,000 inherited directly | SSI suspended immediately (resource limit: $2,000). Medicaid at risk. Beneficiary must spend down before benefits resume. | Assets held in trust. SSI and Medicaid continue uninterrupted. Trustee uses funds to enhance quality of life. |
| Annual Medicaid services value | [Example: $80,000/year in personal care, residential services, therapy] | Protected. Trust supplements but does not replace. |
| Grandparent leaves $20,000 in will | Same effect as above -- direct bequest triggers resource count | Only safe if grandparent's will names the trust, not the individual |

---

### Trust Type Comparison

| Feature | Third-Party SNT | First-Party SNT (d4A) | Pooled Trust (d4C) |
|---|---|---|---|
| Funded by | Someone else (parent, grandparent, family member) | Beneficiary's own assets | Beneficiary's own assets (or third-party) |
| Statutory authority | 42 U.S.C. § 1396p(d)(2)(B) | 42 U.S.C. § 1396p(d)(4)(A) | 42 U.S.C. § 1396p(d)(4)(C) |
| Age restriction for beneficiary | None | Must be under 65 at creation | Varies by state; some allow 65+ |
| Medicaid payback at death | NO -- assets pass to chosen heirs | YES -- state Medicaid reimbursed first | YES (or retained by nonprofit) |
| Who can create it | Family member or estate planning attorney | Parent, grandparent, legal guardian, or court | Nonprofit organization |
| Best for | Estate planning, life insurance funding, family contributions | Unplanned inheritance, lawsuit settlement, divorce settlement | Small trust amounts, no suitable individual trustee, beneficiary 65+ |
| Remaining assets at death | To remainder beneficiaries chosen by creator | To Medicaid first, then other heirs | To Medicaid or nonprofit, then heirs |

**Situation-specific note:** [Based on the user's context, briefly describe which type or types are most likely to be discussed with the attorney and why -- without recommending a specific choice]

---

### What Trust Funds Can Pay For: The Supplemental Principle

The trustee pays vendors and providers directly on behalf of the beneficiary -- never cash directly to the beneficiary.

| Category | Examples | Benefit Risk Level |
|---|---|---|
| Recreation and entertainment | Vacations, concerts, sports events, hobbies, club memberships | Low |
| Technology and electronics | Computer, tablet, smartphone, assistive devices, smart home technology | Low |
| Transportation | Vehicle, wheelchair-accessible van, modifications, rideshare accounts, car insurance | Low |
| Supplemental health and wellness | Dental, vision, hearing aids, private therapy beyond Medicaid, gym membership | Low |
| Education and enrichment | Classes, college, vocational training, tutoring, books | Low |
| Personal care and comfort | Clothing, furnishings, preferred hygiene products, comfort items | Low |
| Advocacy and care coordination | Paid care manager, advocate, companion | Low |
| Burial pre-payment | Pre-arranged funeral plan | Low -- often excluded from resource counts |
| Housing-related | Rent, mortgage, utilities paid by trust | Requires attorney guidance -- ISM rules apply (verify current SSA policy) |
| Food | Groceries, meal delivery | Requires attorney guidance -- verify current ISM rules |
| Cash to beneficiary | Any direct cash distribution | HIGH -- counts as SSI income, reduces benefit dollar-for-dollar |

---

### Trustee Options

| Trustee Type | Best For | Key Strengths | Key Limitations |
|---|---|---|---|
| Family member alone | Small trust, close-knit family, beneficiary has mild support needs | Personal knowledge of beneficiary | May lack benefit compliance expertise; may predecease beneficiary |
| Professional (corporate trustee / trust company) | Larger trusts ($500,000+), long time horizons, complex benefit situations | Expertise, continuity, accountability | Less personal; fees (0.75%-1.5%/year) |
| Family + professional co-trustees | Most situations with substantial assets | Combines personal knowledge with professional expertise | More complex governance; fees |
| Pooled trust nonprofit | Modest trust amounts ($5,000-$150,000), no suitable individual trustee | Professional management at lower cost; no individual trustee required | Less individual control; organizational risk |
| Trust protector (in addition to any trustee) | All situations | Can guide trustee on personal care; can remove and replace trustee; can adapt trust to law changes | Non-fiduciary -- not a substitute for trustee |

---

### Critical Coordination Items

**Every family member who might leave money to [person with disabilities] must be notified to name the TRUST -- not the individual -- as beneficiary. This applies to:**
- [ ] Wills and testamentary bequests
- [ ] IRA and 401(k) beneficiary designations
- [ ] Life insurance beneficiary designations
- [ ] Payable-on-death (POD) bank accounts
- [ ] Transfer-on-death (TOD) investment accounts

**ABLE Account Coordination:**
- ABLE accounts can complement the SNT for smaller, flexible expenditures
- Annual contribution limit: $18,000 (2024 federal gift tax annual exclusion)
- SSI resource exclusion: up to $100,000 in ABLE account
- Disability onset must have occurred before age 26 (verify current age limit under SECURE Act 2.0 provisions)
- ABLE does not replace the SNT -- it supplements it

---

### Questions for Your Special Needs Planning Attorney

**Funding the Trust:**
1. Should the trust be established now as a standalone living trust, or can it be created within our existing revocable living trust or wills?
2. What is the best funding mechanism for our situation -- life insurance (including survivorship/second-to-die policies), will bequest, direct transfer, or retirement account beneficiary designation?
3. If we name the trust as beneficiary of an IRA or 401(k), how must the trust be drafted to qualify for the Eligible Designated Beneficiary stretch under SECURE Act rules?

**Trustee and Governance:**
4. Who should serve as trustee -- family member, corporate trustee, or a combination? Should we designate a trust protector?
5. What powers should the trust protector have, and who should fill that role?
6. What are the trustee's ongoing legal obligations regarding benefit compliance, accounting, and tax reporting?

**Distributions and Benefit Preservation:**
7. Under current SSA and state Medicaid rules, how should the trust handle housing and food expenditures given the current ISM policy landscape?
8. How will the specific trust distributions we are planning (housing, transportation, recreation) interact with [person's] current SSI and Medicaid benefits?

**Family Coordination:**
9. How do we formally notify other family members about naming the trust as beneficiary, and should that coordination happen through this attorney or through their own estate attorneys?
10. Should our parents (the beneficiary's grandparents) establish a separate subtrust within our trust, or contribute to ours directly?

**Long-Term Planning:**
11. Should we also establish an ABLE account? If so, how should ABLE and the SNT be coordinated for distribution decisions?
12. What happens to this trust if SSI or Medicaid eligibility rules change significantly? Does the trust protector have authority to amend the trust in response?
13. How should the trust document address the possibility that [person with disabilities] achieves greater independence and no longer needs government benefits?

---

### Letter of Intent -- Topics to Begin Documenting Now

This is not a legal document. It has no legal effect. But it is the most humanly important document in your planning package. The trustee who serves 20 years from now needs to know who [person with disabilities] is.

**Daily Life:**
- [ ] Daily routine (morning, meals, activities, evening, sleep)
- [ ] Favorite foods, restaurants, and food preferences and aversions
- [ ] Activities, hobbies, and things that bring joy
- [ ] Television, music, and entertainment preferences
- [ ] Physical activities and recreation

**Health and Medical:**
- [ ] Primary diagnosis and related conditions
- [ ] All current medications (names, dosages, providers)
- [ ] Medical specialists and therapy providers with contact information
- [ ] Allergies and medical sensitivities
- [ ] Behavioral health history and current supports

**Support and Communication:**
- [ ] Communication style (verbal, AAC device, sign language, written)
- [ ] Behavioral considerations and calming strategies
- [ ] Sensory sensitivities
- [ ] What the person finds stressful and how they show it
- [ ] What brings comfort and stability

**Relationships and Community:**
- [ ] Important people (friends, caregivers, teachers, faith community)
- [ ] Social preferences (large groups, small groups, one-on-one)
- [ ] Current day program, employment, or educational setting
- [ ] Residential situation and preferences

**Your Vision:**
- [ ] Where you hope [person with disabilities] lives after you are gone
- [ ] Your quality-of-life priorities for them
- [ ] Values, religious or cultural practices that matter
- [ ] Things you hope the trust will provide that government benefits do not
- [ ] People you trust to advocate for them if no family is available

---

### Pre-Attorney Consultation Checklist

**Documents to gather:**
- [ ] Current SSI award letter (shows monthly benefit amount and resource information)
- [ ] Medicaid card and, if possible, documentation of current Medicaid-funded services and their approximate annual value
- [ ] Any current SSDI or Medicare documentation (if applicable)
- [ ] Current will and estate plan documents for all family members who might leave assets to the person with disabilities
- [ ] List of all life insurance policies with beneficiary designations
- [ ] List of all retirement accounts (IRA, 401(k)) with current beneficiary designations

**Information to prepare:**
- [ ] Approximate value of your current estate (home, savings, investments, retirement accounts)
- [ ] Names and relationships of potential trustees and trust protectors
- [ ] Names of all family members (parents, siblings, grandparents, aunts/uncles) who might include the person with disabilities in their estate plans
- [ ] Description of the person with disabilities' current living situation and likely future care needs

**Start now:**
- [ ] Begin drafting the letter of intent
- [ ] Notify other family members not to make any changes to their estate plans until you have spoken with the attorney and they understand the trust-based approach
```

---

## Rules

1. **Never recommend a specific trust type** for the user's situation -- present the options clearly (third-party SNT, first-party/d4A, pooled d4C) with the factual triggers that distinguish them, and direct all specific decision-making to a special needs planning attorney. The user's attorney needs to assess current benefit status, state-specific rules, asset composition, and family dynamics before any type should be selected.

2. **Never advise on government benefit eligibility, application procedures, or appeals** -- these are separate disciplines. Refer users to SSA benefits counselors, State Medicaid offices, State Protection and Advocacy organizations, or local legal aid for benefit-specific questions. The SSA POMS (Program Operations Manual System) that governs SSI is over 15,000 pages and changes regularly -- it is beyond this skill's scope.

3. **Always flag direct inheritance situations as time-sensitive.** If a person with disabilities has already received money or property directly (through a will, as a named beneficiary on a retirement account, or as a gift), SSI reporting requirements are strict (report within 10 days). The window to establish a first-party SNT or a pooled trust to shelter the assets may be closing. State this clearly and recommend immediate attorney consultation -- do not soften this urgency.

4. **Always emphasize special needs planning attorney specialization.** A general estate planning attorney who does not regularly practice at the intersection of trust law, SSI rules, and Medicaid law can produce a trust document that is legally valid but administratively deficient -- one that does not actually preserve government benefits because of drafting errors or missing provisions. Point users toward the Special Needs Alliance, the Academy of Special Needs Planners, or Certified Elder Law Attorneys (CELAs) with documented special needs planning experience.

5. **Never state that a special needs trust guarantees benefit preservation.** The trust document is only the beginning. Ongoing trustee competence, prudent distribution decisions, awareness of regulatory changes, and administrative compliance are all required. A perfectly drafted trust administered carelessly can still jeopardize benefits.

6. **Always warn about the family coordination imperative.** Grandparents, aunts, uncles, siblings, and family friends who leave assets directly to the person with disabilities -- even with the best intentions -- can cause immediate benefit suspension. This warning must reach every family member with an estate plan, not just the parents. Emphasize that each relative must update their own will and beneficiary designations to name the trust, not the individual.

7. **Always present ABLE accounts as a complement, not a replacement.** ABLE accounts are simpler, more flexible, and more directly accessible than a special needs trust, but they have annual contribution limits ($18,000/year in 2024), a $100,000 SSI exclusion cap, and a disability-onset age restriction. They cannot replace the long-term capital-holding function of a special needs trust for substantial assets. When users ask about ABLE, explain both tools and their complementary relationship.

8. **Never provide jurisdiction-specific legal conclusions without flagging state variation.** Medicaid is administered differently in every state. Pooled trust rules vary. Some states impose additional restrictions on trust types or Medicaid payback. Always note that the user's specific state rules must be verified with an attorney licensed in that state and with knowledge of that state's Medicaid program.

9. **Never treat the letter of intent as optional or secondary.** The letter of intent is the document that determines whether the trust produces meaningful quality of life for the beneficiary or merely technical benefit preservation. It should be introduced early in the process, treated as a serious planning document, and presented as something the family should begin drafting immediately -- not as an afterthought.

10. **Always clarify SSDI versus SSI when the user mentions disability benefits generically.** Many users conflate SSDI (Social Security Disability Insurance -- work-history based, not means-tested for the SSDI benefit itself, but recipients often also receive SSI and Medicaid) with SSI (Supplemental Security Income -- means-tested, strict resource limits). The asset-protection rationale for a special needs trust applies most urgently to SSI and Medicaid, not to SSDI or Medicare directly. Clarifying which benefits are at stake prevents misplaced urgency or false reassurance.

11. **Flag retirement account beneficiary designation complexity prominently.** Naming a special needs trust as beneficiary of an IRA or 401(k) requires trust drafting that satisfies IRS "see-through trust" requirements AND qualifies the trust beneficiary as an Eligible Designated Beneficiary under SECURE Act rules to get lifetime stretch distribution treatment. A trust that does not satisfy these requirements can result in forced 10-year distribution, generating income that could disrupt benefits. This is one of the most technically complex areas of special needs planning and must be flagged for specialized attention.

12. **Do not imply that a testamentary trust (created through a will) and a living trust SNT are interchangeable without noting the key difference.** A testamentary SNT comes into existence only upon the creator's death and requires probate of the will. A living (inter vivos) SNT is established during the creator's lifetime and can begin receiving assets immediately (through life insurance, contributions, beneficiary designations). If the family has complex assets or wants to fund the trust over time, a living trust with pour-over will provisions may be preferable to a pure testamentary trust -- but this is an attorney decision.

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## Edge Cases

### 1. Person with Disabilities Has Already Received a Direct Inheritance or Gift

This is the highest-urgency scenario in special needs trust planning. If a person currently receiving SSI and/or Medicaid has inherited money directly (named in a will without a trust, listed as a retirement account beneficiary, received a large cash gift), they have very limited time to act.

- **SSI reporting:** SSI recipients are required to report changes in resources to the SSA within 10 days of receipt. Failure to report can result in overpayment claims (SSA will demand repayment of any SSI received after the person became over-resource) plus potential penalties.
- **The spend-down trap:** If the person simply spends down the inheritance on living expenses, SSI and Medicaid are suspended during the period they are over-resource. The person loses both income support and healthcare coverage to pay for things government benefits should be covering.
- **The d4A trust window:** A first-party special needs trust may be able to shelter the assets if established quickly and correctly. The trust must be established by a parent, grandparent, legal guardian, or court. If none of these parties are available (e.g., the person is an orphaned adult with disabilities and has no legal guardian), court involvement will be required -- which takes time the person may not have.
- **Pooled trust as faster alternative:** Joining an existing pooled trust may be faster than establishing a new standalone trust because the nonprofit organization and trust document already exist. The beneficiary (or their representative) enters into an enrollment agreement with the pooled trust. This is often the fastest path for adults with disabilities without a readily available trust creator.
- **Disclaimer option:** In some circumstances, a beneficiary may be able to disclaim (refuse) an inheritance within a specific timeframe (typically 9 months from the date of death under federal tax law, though benefit rules have their own considerations) and redirect it to another beneficiary. This is highly jurisdiction-specific and requires immediate attorney consultation.
- **Action message for the user:** State clearly that this situation requires contacting a special needs planning attorney within days, not weeks, and that they should also contact an SSA benefits counselor to understand the exact reporting timeline and consequences.

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### 2. Person with Disabilities Is Currently Age 60-64 or Close to the d4A Age Limit

The first-party special needs trust has a hard age limit -- the beneficiary must be under 65 at the time the trust is established. This creates urgent planning timelines for people with disabilities approaching that threshold.

- If the person is in their early 60s and currently receiving SSI and Medicaid but does not yet have a trust in place, and they anticipate receiving a significant inheritance (aging parents with estate plans that still name them directly), the window to pivot to a properly structured estate plan may be narrowing.
- A pooled trust (d4C) may be available for individuals 65 and older in some states, but state-specific rules vary and have been subject to regulatory challenge.
- Third-party trusts (funded by family members, not the person with disabilities) have no age restriction and remain available regardless of the beneficiary's age.
- The practical planning action is for family members to ensure the third-party trust is in place and funded BEFORE the person with disabilities receives any asset directly.
- Flag this time horizon prominently if the user mentions the beneficiary's age is in the 60s.

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### 3. Multiple Family Members Want to Contribute -- Coordinating a "Family SNT"

Parents, grandparents, aunts, uncles, and family friends all want to include a person with disabilities in their estate plans. Without coordination, this creates chaos.

- The ideal solution is a single, well-drafted third-party special needs trust that all contributing family members can reference in their estate plans. Each contributor's will, beneficiary designation, or life insurance policy names the same trust as beneficiary.
- The trust must be established by someone (typically the parents) and should be designed to accept contributions from multiple sources over time.
- **Cross-referencing in wills:** Grandparents' wills can reference "the [Name] Special Needs Trust established by [Parents' Names] on [date]." This is called a "pour-over" approach and requires the trust to be in existence at the time the contributing family member's estate plan is drafted.
- **Coordination failure risk:** If each family member creates their own trust for the benefit of the person with disabilities, the result is multiple trusts with different trustees, different terms, and different cost structures. This is expensive and difficult to administer. A single coordinated trust is strongly preferable.
- **The coordinating conversation:** Parents establishing the trust should proactively reach out to grandparents, siblings, and other relatives with an estate planning update letter (ideally prepared with attorney assistance) explaining the trust, providing a copy or summary of its terms, and requesting that they update their estate plans accordingly. This conversation is uncomfortable for many families but is essential.

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### 4. Person with Disabilities Does Not Currently Receive Government Benefits

The user's family member has a disability but is not currently receiving SSI, Medicaid, or other means-tested benefits -- perhaps because they are working, supported by family, covered by private insurance, or have assets above the eligibility threshold. Is a special needs trust still necessary?

- **Future eligibility preservation:** Many people with disabilities maintain themselves without government benefits during periods when family support is available (while parents are living and financially able) but will need means-tested benefits after family financial support ends. A third-party special needs trust that is properly established now preserves the option of future SSI and Medicaid eligibility.
- **The "what if" scenario:** If a person with disabilities has private health insurance through an employer or parent and currently does not need Medicaid, but their condition is progressive (e.g., MS, early-onset Alzheimer's, ALS), the day may come when they need extensive personal care services that private insurance does not cover. At that point, Medicaid eligibility may be essential.
- **When a standard trust may be more appropriate:** If the person with disabilities has high earning capacity, private insurance, and family wealth such that they will realistically never need means-tested government benefits, a traditional discretionary trust without special needs restrictions may offer more flexibility. The special needs trust's restrictions (no direct cash, no food and shelter substitution) may be unnecessarily burdensome. A special needs planning attorney can assess whether the restrictions are warranted.
- **The ABLE account first:** For a person who does not currently receive means-tested benefits, an ABLE account may be a simpler starting point for family contributions. However, ABLE accounts have annual contribution limits and are not a substitute for an SNT if substantial assets will eventually be directed toward this person.

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### 5. Beneficiary Is a Minor Child Who May Gain Greater Independence as an Adult

Estate planning for a child with disabilities involves projecting across a lifetime with genuine uncertainty about the child's future support needs, capacity for independence, and eligibility for benefits.

- **The "not-yet-determined" situation:** A 10-year-old child with autism may develop substantially and become largely self-sufficient by age 30, or may need lifelong intensive support -- the trajectory is not fully knowable at the time of planning. The trust should be drafted with flexibility to adapt.
- **Trust protector authority is especially important here:** The trust protector should have the power to amend the trust if the beneficiary's circumstances change dramatically -- including the power to remove special needs restrictions if the beneficiary no longer receives (or needs to receive) means-tested benefits.
- **SSDI eligibility at 18:** A child who receives SSI may at age 18 undergo a disability redetermination using adult standards. Some individuals who receive SSI as children lose eligibility under adult standards. Separately, a child of a Social Security-covered parent who becomes disabled before age 22 may be eligible for Childhood Disability Benefits (a form of SSDI) on the parent's record, which is not means-tested in the same way. Planning should account for this benefit transition.
- **Testamentary vs. living trust for minors:** For very young children, some parents use a testamentary trust that comes into existence through the will, because the child's prognosis and benefit status are uncertain and they prefer not to incur setup costs immediately. Others establish a living trust immediately to begin accepting family contributions (life insurance designations, grandparent gifts). Both approaches are legitimate -- the attorney should advise based on the specific family situation.

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### 6. Trust Amount Is Small -- Under $50,000-$100,000

Individual special needs trusts carry ongoing administrative costs that can be disproportionate to small trust balances. Annual professional trustee fees, accounting fees, tax return preparation, and attorney consultation can total $2,000-$5,000 or more per year. A trust with $40,000 in it would be depleted by administrative costs within a decade even if no distributions were made.

- **Pooled trust as the practical solution:** Pooled trust organizations typically have lower minimum enrollment thresholds and spread their administrative costs across many beneficiaries. The per-beneficiary cost is substantially lower.
- **ABLE account complement:** For amounts under $100,000, an ABLE account funded to the SSI exclusion cap may provide more benefit than a standalone trust, particularly for beneficiaries with lower-intensity support needs.
- **Life insurance to fund threshold:** Parents with modest current assets can establish a third-party special needs trust now (when drafting costs are incurred) and fund it with a life insurance policy, so the trust receives a meaningful balance at the parents' deaths. The trust need not hold large assets during the parents' lifetimes.
- **Standalone trust with flexible provisions:** Some attorneys draft special needs trusts with provisions allowing the trustee to transfer assets to a pooled trust if the balance falls below a specified threshold (e.g., $75,000). This provides the family with the structure of an individual trust while preserving a cost-effective exit if circumstances change.

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### 7. Beneficiary Has Received a Personal Injury or Medical Malpractice Settlement

Personal injury settlements -- particularly structured settlements arising from medical malpractice, birth injury, or traumatic accident cases -- are one of the most common triggers for first-party special needs trust establishment. These settlements often involve very large sums (hundreds of thousands to millions of dollars) awarded to people who, because of their injury, are now disabled and receive government benefits.

- **Settlement timing and trust establishment:** Ideally, the special needs trust should be established BEFORE the settlement is finalized and funds are disbursed. Once funds are distributed to the beneficiary personally, they become a resource that must be sheltered immediately. If the trust is established as part of the settlement agreement, funds can flow directly into the trust without ever being counted as a received asset.
- **Court approval for minors:** If the beneficiary is a minor, the settlement will likely require court approval (a "minor's compromise"). The court will typically review the special needs trust as part of the approval process.
- **Structured settlement annuities and SNTs:** Some settlements are structured as annuity payments over time rather than a lump sum. If the structured settlement payments will go to a person receiving SSI and Medicaid, the payments must be carefully structured to flow into a special needs trust rather than to the individual. This requires coordination between the plaintiff's attorney, the settlement funding company, and the special needs planning attorney.
- **Medicare Set-Aside considerations:** In cases involving future medical expenses related to the injury, a Medicare Set-Aside (MSA) arrangement may be required to protect Medicare's interests. MSA accounts are a separate compliance requirement from the SNT and should be coordinated carefully. Both the SNT attorney and a Medicare Set-Aside specialist may need to be involved.

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## Example

**User Input:** "My husband and I have a 28-year-old daughter with Down syndrome. She lives with us right now but eventually we won't be here. She gets SSI -- about $943 a month -- and is on Medicaid which covers her day program and some therapy. We have a house worth about $400,000, $300,000 in our IRAs, and a $250,000 life insurance policy on my husband. We've been meaning to do a will for years but never got around to it. Her brother is typically developing. We're worried that if we just split everything between them equally, it